Russia moves to resolve Dornod title issues

30 November 2009

Russia's AtomRedMetZoloto (ARMZ) has moved to resolve uncertainty over titles to a Mongolian uranium field by buying the Canadian company with a rival claim.


Dornod (Khan)
Dornod (Image: Khan)
State-owned uranium ARMZ will be making an unsolicited cash offer for all the shares of Khan Resources, thereby taking control of Khan's exploration licence for the Dornod deposit as well as a 58% of a mining license held by Central Asia Uranium Company (CUAC). The other two partners in CUAC are Mongolia's MonAtom and ARMZ.


Khan complained in July that Mongolian authoirities had suspended its mining and exploration licenses for unknown reasons. It was also surprised by a new nuclear law that granted the state more control of uranium reserves. Then, in August, Khan was apparently pushed aside from Dornod so that Mongolia could set up a tax-break company with Russian interests instead. An agreement between Rosatom and The Office of Nuclear Energy of Mongolia was to lead to a 50-50 joint venture of ARMZ and MonAtom for the purposes of developing Dornod. The move by ARMZ would appear to bring this confusing situation to an end.


Dornod was chosen for the first joint venture between the state companies because it has "in excess of 50,000 tons of uranium reserves" and is ready for the legal work ahead of "a short time to start mining," said ARMZ. The supposed joint venture will be tax-exempt for the Russian workers during its early phases.


ARMZ has offered C$0.65 ($0.62) for each share in Khan, a premium of some 48% on the closing market price on 26 November. Vadim Zhivov, director general of ARMZ, said that the company believes "the offer represents full and fair value for the Khan shares and provides Khan shareholders with an opportunity to receive liquidity at a significant premium to the current market, as well as value certainty today, relative to the significant political and licensing risks associated with the development of the Dornod property in Mongolia."


In a statement, Khan said that until it formally receives the offer and reviews the terms and conditions of any such offer, it will not comment on the offer or speculate as to any future course of action it might take.


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